No free lunch in negotiation of project contracts

In economics, people are familiar with the “no free lunch” theorem. It means that, whatever goods and services are provided, they must be paid for by someone. During contract negotiation, I often faced the situation that parties asked additional concessions without any reason or argument, just to close the deal. This came mostly from Employers because, in the current buyers’ market, they have most power. But the same could also come from Contractors when they have a strong position. It is important to understand that, asking a concession from your counterpart without giving anything in return, is detrimental to the entire negotiation process. As you will see from this post, there should be no free lunch in negotiation either.

Easy analogy of no free lunch in negotiation

To make this perfectly clear, let me start with a non-controversial analogy based on holiday experiences:

A couple of years ago, on transatlantic flights, each passenger could take a luggage of 32 kg. Airline operators quietly reduced it to 23 kg at some point of time. Now, on the latest flight I am taking, you have to pay for every luggage you take.

Of course, these additional payments could make passengers upset. But, one can also look at it from a more practical point of view. Over the years, airport taxes have increased substantially. Airline operators, under heavy pressure (e.g. by low cost companies), have lowered their part of the ticket price. The biggest driver for the airliner’s cost is the weight the plane is carrying. It determines the amount of fuel required which represents the biggest part of the variable costs.

Before, ticket prices obviously included the cost impact of “free luggage”. And there was no incentive for passengers to take less kilos. I could take a big amount of books on holidays and might not read them all. Now that luggage has to be paid for, one starts thinking about it: shall I take a reasonable amount of books, maybe rather paperbacks? Or, shall I buy some books or magazines at my destination instead?

Both passengers and airline operators optimize ticket prices when the impact of the luggage weight on the costs is understood.

Risks of asking unilateral concessions

Let’s face it, there is no free lunch in negotiation either. Here are some consequences when asking unilateral or unjustified concessions at the end of a negotiation:

  • Everbody will quickly know that in your company, country or culture, it is a habit to give a last-minute negotiation discount. So people calculate it in form the start. My son never wants to wake up the first time I call him. So, I do it 10 minutes earlier and let him stay in bed a bit more.
  • In case you really push your counterpart a bit further to give that final concession without anything in return… he will be in for revenge. Such concession can be a discount, but not only. It can also be a painful carve-out on the limits of liability, an additional year of warranty, worse payment conditions etc. Revenge is a meal best served cold. Not a good ending of a negotiation. No win-win mood. And, we all know what that does for long term relationships.

What to do instead ?

Don’t ask for unilateral concessions… and also do not give any. For many of us, it will be a change of mentality. Of course, you have to continue “defending” the interests of the company you are representing. But look beyond your own interests. Actively listen to the interests of your counterpart. The outcome of a negotiation can only be optimized by finding solutions that generate more value for one party (or both) than they cost for the parties. Allocate the cost correctly and share the upsides.

When someone asks you a unilateral concessions, don’t panic. Think what you still want from her/him and ask it in return. As a reminder, the right way to give a concession is as follows: “if you can give X to us, we are willing to provide Y”. Start with what you expect from your counterpart as a condition for your concession. When you say “I will give you Y if you give me X”, your counterpart will have stopped listening after you say “I will give you Y” and “forget” the concession that is required from their own side.

Conclusion

Very simple: there is no free lunch in negotiation! No one-sided concessions should be asked nor given. Well-chosen bi-lateral concessions generate value and lead to project optimization.

From their respective going-in positions, parties should work hard to understand the interests of the other party. Concessions should maximize value for both parties. This optimization process will automatically stop when the parties can no longer find sufficient value to be exchanged, when concessions can’t be matched anymore.

Negotiation is a regular subject on this blog. Click here to see other negotiation topics.

Contract negotiation team, setting-up a balanced team

In this post we will reflect on the following topics that help building the ideal contract negotiation team:

  • What team composition is beneficial for your negotiation?
  • How to provide adequate roles to each member of your contract negotiation team?
  • What behavior to expect from the team?

A balanced composition of your contract negotiation team

Bring a lawyer, or not?

Let us start with a controversial topic: to bring a lawyer, or not, on your contract negotiation team; that’s the question!

I’ve met a lot of people saying you should first reach a principle agreement with your counterparts and then call in the lawyers to spell out the deal.

I’ve also seen the opposite on many occasions: people that were afraid to take initiative and left everything up to there lawyers. They didn’t even open their mouth during the negotiation except for whispering in the ear of their lawyer. A very minimalist and stressed approach to negotiations, rarely leading to mutually beneficial deals.

My personal experience is as follows: On very few deals, I went to negotiate without a lawyer in my team. Through experience, I’ve learned most of what is needed to provide arguments and find solutions on contracts for complex projects (EPC, design-build, construction contracts, electromechanical turn-key agreements etc.) My many lawyer colleagues, the majority I can now call friends, can confirm this. Through circumstances (unavailability of lawyer or underestimation of the depth of the negotiation), I twice led a several-day negotiation without lawyers on our side. And, the other side did have their lawyers, several. On both occasions, things went sour, for multiple, interlinked reasons. Not because I didn’t find the arguments but rather due to overexposure, getting tired and worn out, lacking rapport etc. I will be very careful not to make the same mistakes again. For a balanced team, better to get a lawyer supporting you.

Size of the team?

Some managers want to cut costs on everything. Even for the negotiation team, they always wonder if you cannot leave some people out. Sometimes, they ask if you can’t do a complex deal over the phone and through email! Negotiation is “money time”. I can assure you that an insufficient team will destroy more value than their travel and availability costs.

Still, your team should not be too big. From experience, I believe the adequate size is between 4 and 6 persons per team. Of course, this depends on the complexity of the negotiation. That’s a compact team for a 10 to 500 million dollar negotiation; good value for money.

Take too many people and you lose control over the situation. I remember a price negotiation where, when we were about to  a lower price, some persons of our counterpart were whispering to each other “is it starting with a 4?”. We were a bit above 500. So we understood, we had to land at 499 million and not lower…

Aim for a diversified team: women & men, different cultural backgrounds etc. It gives a good impression and there are more opportunities to create rapport with your counterpart.

Characteristics of the team members?

The typical team for complex construction or electromechanical D&B contract negotiations is as follows:

  1. The team leader who is normally the one specialized in commercial subjects: price, payment terms, performance and delay LDs, etc. This person should be sufficiently versatile to also talk about insurance, tax, bank guarantees etc. If needed, occasionally, you can call in more specialized persons on these subjects.
  2. The lawyer (as mentioned above), handling the tougher legal issues: indemnities, limits of liability, warranties, everything that has to do with the governing law, dispute resolution etc… the nasty subjects.
  3. The technical person with a broad spectrum. For very specific technical issues, he can call in additional resources. But he should best remain on board for virtually the whole process.
  4. For international projects, the local business developer. Someone who is meeting the counterpart on a regular basis over months or years, also outside these tough negotiation sessions. She will have a good long term relationship with the counterpart. She doesn’t have to say much during the formal negotiations but should remain informed and ready for the parallel diplomacy, especially when the going gets tough. One thing is important though, this persons should be trustworthy and capable of handling confidential information. Sometimes this type of person suffers from a “Stockholm syndrome” and can’t avoid passing everything on to the counterpart. In that case, they should be kept “at arm’s length” without knowing the ultimate details of your preparation. This person will then automatically become much less effective.
  5. A really good observer, almost a “profiler” that can also handle some real subjects. This can very well be a more junior person with whom the team leader is very comfortable to exchange observations about the situation as it evolves. Even better would be to bring a negotiation coach on board; he can support with the negotiation tactics, do some part of the negotiation and especially give advice to all the members of the contract negotiation team.

Roles and behaviors of the contract negotiation team members

You should establish the following rules with your contract negotiation team:

  • The team members should concentrate 100% of the available time on the negotiation, even if it is not their subject. It is very counterproductive to put 20 persons in a meeting room and have only 3 or 4 actively participating. The rest is typing frantically on their keyboards or surfing the web. Not very polite for the counterpart and not very motivating for your own side. Active listening or better to leave the meeting room!
  • Balance out the subjects so that no person of your team should only handle difficult topics. Typically, the technical matters are less controversial. It is elegant from the technical person in your team to leave some easy technical subject for the team leader to resolve. The lead negotiator can then be seen to be solving issues. He is not only a blocker on the “deal breakers”.
  • The team members should be aware of their behavior (body language, tone of voice) and language (avoiding negative words, accusations, hesitation, sarcasm). Unless in very special occasions, everyone should talk with a calm voice, be relaxed and pleasant. If you are not a natural talent at this, you should train on it. Personally, it took me years and still improving.
  • Observation is so important in negotiation. Therefore, while one of your team is talking through a subject, the others should actively listen and especially watch. So much can be derived from body language. And not only at the center of the table. After the meetings, share within the team what has been observed. See also the following article: “Contract negotiation: after a long day of negotiation… 6 essential things to do
  • Brainstorm with the team about potential win-win solutions that can be proposed. More heads think better!
  • During lunch and coffee breaks don’t stay within your team but talk to and build rapport with your counterparts.

Conclusions

  • Go for a not-too-big team that can concentrate on the negotiation. Most of the time 4 to 6 persons.
  • Give balanced roles to the different team members in order to partially discharge the team leader.
  • Everyone to be self-conscious and to listen actively and observe.

For more articles on negotiation in this blog, click here.

Harvard Negotiation Masterclass, some feedback.

Last week, I’ve participated to the Harvard Negotiation Masterclass. Its objective is to instill advanced skills and new insights in participants already well-versed in the foundational concepts of a mutual-gains approach in negotiation. This is done in small groups, with access to negotiation experts from Harvard Law School, Harvard Business School and the Massachusetts Institute of Technology (MIT). The Program on Negotiation, a consortium project of these universities, is probably the world’s most vibrant effort for reflection and training on negotiation.

This negotiation masterclass clearly shows the importance, for a negotiator, to be conscious about the negotiation process, the situation of the counterpart and your own behavior. Far too often, we still send negotiators in front of their counterparts with barely the minimum information – the ideal outcome for one’s own side and some arguments to be stated in an affirmative way – assuming things will go smoothly or that the elected negotiators would be natural talents. Experienced negotiators know that is wishful thinking…

4 half-day sessions and networking

Brian Mandell’s opening course was, not surprisingly, about creating impactful openings. He has extensively studied the “thin slice” of the first 5 minutes of a negotiation, or more generally the pre-anchoring phase (before the first “anchor” offer is made), during which important things happen that influence, to a great extent, the outcome of the negotiation. Concrete tactics and skills have been provided to the participants to determine “readiness to negotiate”, shape process expectations, ask probing questions, control the amount of time and the tone of your speaking etc. For those long and complex negotiations I’ve been taking part to, the pre-anchoring phase is definitely longer than 5 min. But I fully acknowledge that this pre-anchoring phase has a disproportionate impact on the rest of the negotiation. It should therefore attract a substantial part of our preparation and concentration. We did 3 consecutive simulation exercises with 3 different persons, which was certainly helpful to fix the principles in our minds and learn by doing.

As Francesca Gino was unfortunately absent, Julia Minson introduced us to the subject of cognitive biases and the way to overcome them in negotiation. I am quite a rational person, so, unfortunately for the sake of this course, my results of the upfront test didn’t identify substantial biases. Maybe, my personal bias was an excessive will to give what I perceived as the most adequate answer? Still, understanding which biases occur and how they impact us is fundamental, both for knowing ourselves and understanding irrational behavior in our negotiation counterparts. Some examples of these biases: the framing effect, sunk cost bias, decoy/asymmetric dominance effect, self-serving perception of fairness, etc. A realistic simulation exercise of a classic building conflict around a rejected claim, was helpful to stir up the biases within these experienced negotiators. Food for reflection afterwards, I hope.

“Diversifying the negotiator’s emotional portfolio” was the subject of the second day’s morning part, presented by Michael Wheeler (replacing Kim Leary). Some of the topics: The impact of anger and anxiety; Emotional Intelligence; Recognizing facial expressions; Ability to recognize deception. Reference was also made to various authors on the subject, including Chris Voss the writer of the bestseller “never split the difference”.

Finally, professor Larry Susskind shared with the participants his vast experience and research which is the product of actual practice (rather than experimental research). He gave passionate explanations on multi-party negotiations, winning and blocking coalitions, devising seminars, consensus building and the helpful role of facilitators/mediators. A very realistic simulation of a potential harbor investment project with all involved stakeholders (regulator, ecologists, unions, other harbors etc.) enabled the participants to exercise consensus building, avoid blocking coalitions and look for a mutually beneficial solution that maximizes the value creation.

Apart from these sessions, there were also networking opportunities and breakfast & dinner events with the participants, the above-mentioned thought leaders and the negotiations coaches.

Value of this negotiation masterclass

For the investment that participation to this negotiation masterclass represents (about 5 kUSD to which you have to add hotel and travel expenses), it is clear that participation is an exceptional event that can only be justified for certain profiles of negotiators: very experience negotiators that want to further develop their self-consciousness and continue improving, negotiation team leaders, people training others (professors, consultants etc.). The whole marketing of the course is around this. But one absolutely needs to be aware that this course is not a shortcut to reach negotiation maturity rapidly. You would not be able to draw enough basic learning from this negotiation masterclass without substantial prior experience and/or training.

The advantage of the high “entry ticket” and “masterclass status” is that you get a more homogeneous group of participants. Homogeneous in terms of negotiation experience, while the participants were from all over the world, which was a big plus. The quality of the other participants is particularly important in view of the large number of negotiation exercises, one-to-one or in small groups. It was important that the participants picked up the substance of the theoretical courses instantly and were able to apply this right away. Otherwise, the feedback from the other participants at the end of the exercise would not be of a lot of value. I personally regret that the organizer didn’t observe more during the exercises and provided personalized feedback; but the size of the groups (60 participants) and the time available (2.5 days) didn’t allow for that. As you can imagine, some of the participants could set aside any fresh learning as soon as an exercise started with their competitive nature kicking-in, leaving their counterparts hardly any time to talk. Not helpful for learning on finding win-win solutions and very much contrary to the substance of this negotiation masterclass.

Don’t hesitate to contact me if you would like to check out, with a completely independent person, whether this training is the right one for you. In case you fit into the descriptions I mentioned above, I can certainly recommend it to you.

Click here for other articles on negotiation from our blog.

Blog on contracts, “AfiTaC.com”, new status after 6 more months

Six months ago, we had published a first situation concerning the interest in the blog on contracts, “Afitac.com”. You can read it by clicking here. Now, curious to see how this blog has developed?

World access map

Because an image says more than a thousand words, we simply show you our world map which has further colored blue. Only very few countries have nobody connecting to this blog. And, as the below list of biggest participating countries shows, all continents are nicely represented:

  • USA
  • France
  • Netherlands
  • United Kingdom
  • India
  • United Arab Emirates
  • Brasil
  • South Africa
  • Australia
  • Spain

Changes over the past half year

The biggest shift was as follows:

  • Back in April, a large part of people visiting this blog where redirected from LinkedIn. Especially, groups on FIDIC or Project/Risk Management had very active participation. However, over the past months, LinkedIn implemented important modifications, reducing its contribution: 
    • A shift from specialized groups to #subjects similar to Twitter, resulting in very limited activity in groups.
    • They now favor video content above text messages.
    • Posts containing external links are shown to less people (limiting “impressions”).
  • Nowadays, the search engines are bringing most new people. The chart below, with the number of visitors sent by search engines (mainly Google and Bing), shows this nicely. From April to June, on average, one or two persons reached the site after an internet search. This continues to increase with now more than 10 visitors per day.

Most popular articles of this blog on contracts

The search engines are now picking up the articles about a wide range of subjects: Negotiation, FIDIC, Tendering Process and Contract Risk Scoring. The most popular once are:

We also introduced a more fun way to reflect on, or learn about, contract management principles with our series “Contract Management & Music”:

This series was hugely popular on LinkedIn with more than 12 000 vies and 148 likes for the summary post:

Other features of this blog on contracts

Over summer, we launched a self-assessment, named “During/after holidays is a good time to self-assess your commercial & contract competences“. The results are helpful for you to determine your development areas and for us to target subjects for future posts. By the way, you can still give it a try. It contains 10 subjects carefully selected enabling you to perform the assessment in 2 minutes. It is targeted to Project, Contract and Tender Managers mainly active in construction, infrastructure, oil & gas and renewable energy projects.

The Tender Risk and Contract Review system, TRaCRs, that enables you to score the risks and get a general understanding of your projects in order to make objective decisions, continues to draw good attention. The following articles explains the main principles:

For those interested in (or, unfortunately, pushed into) dispute resolution, relevant articles can also be found on the blog regarding arbitration, dispute adjudication, mediation etc.

Our LinkedIn company page has steadily grown with more than 100 new followers. A special thanks to these followers for their interest to receive more.

Conclusion

Growth is continuing for this blog on contracts. The English language version is naturally drawing most attention. Besides, if sufficient interest exists, we will also continue with the French, Portuguese and Dutch versions. For the latter two, we seem to be filling a void, which is an extra motivation to serve these language communities (Brazil, Portugal, Mozambique, Angola, the Netherlands, Belgium etc).

Please keep reading us! Bookmark us in your browser; follow us on our LinkedIn page or on Twitter; and, if you appreciate an article, please let us know by providing a “like” or a “comment” or “share” it with others.

You may also contact us to become a guest blogger. We have already benefited from contributions from Jean-Charles Savornin, “Contract Management: are contracts cast in stone?“, and Paul Netscher , “Negative cash flow for construction companies“.

Want to get great at negotiation? Get a coach.

This time, I am going to be a bit lazy and just cite out of Atul Gawande’s TED talk. But how could I say it in a better way? His speech is about coaching in general and not specifically about negotiation. But still entirely relevant to see how coaching can be useful for your negotiation skills. I made very few adaptations to the context of negotiation coaching which you can see in between square brackets [ ] in my summary below.

How to learn and improve?

“How do professionals get better at what they do? How do they get great? There are two views about this.”

“One is the traditional pedagogical view. That is that you go to school, you study, you practice, you learn, you graduate, and then you go out into the world and you make your way on your own. A professional is someone who is capable of managing their own improvement. That is the approach that virtually all professionals have learned by. That’s how doctors learn, that’s how lawyers do, scientists … musicians. And the thing is, it works.”

“Now, the contrasting view comes out of sports. And they say “You are never done, everybody needs a coach.” Everyone. The greatest in the world needs a coach.”

Why should you get negotiation coaching?

“So I tried to think about this as a [contract negotiator]. Pay someone to come into [the negotiation] room, observe me and critique me. That seems absurd. Expertise means not needing to be coached.”

“Turns out there are numerous problems in making it on your own. You don’t recognize the issues that are standing in your way or, if you do, you don’t necessarily know how to fix them. And the result is that somewhere along the way, you stop improving. “

How does negotiation coaching work?

“[A coaching session] was a whole other level of awareness. And I had to think, you know, there was something fundamentally profound about this. He was describing what great coaches do, and what they do is they are your external eyes and ears, providing a more accurate picture of your reality. They’re recognizing the fundamentals. They’re breaking your actions down and then helping you build them back up again. After two months of coaching, I felt myself getting better again.”

“And we knew that just handing out a checklist wasn’t going to change very much, and even just teaching it in the classroom wasn’t necessarily going to be enough to get people to make the changes that you needed to bring it alive. And I thought on my experience and said, “What if we tried coaching?””

“What she worked on most, she said, was inculcating in them habits of thinking and of learning so that they could make their way in the world without her when they were done.”

Conclusions:

  • Negotiation Coaching is for everyone: starters to experts.
  • It provides external eyes and ears, a more accurate picture of your reality to help you continue improving.
  • Providing habits of thinking and of learning that remain after the coaching.

Click here for other publications on Negotiation Coaching on this website. 

Talking about contract management, what are the latest evolutions and how can AfiTaC support?

In this post, we are talking with Jan Bouckaert about the evolution in contract management and the role AfiTaC can play in this.

What is evolving for contract management in the broad sense?

Jan: Some of the latest evolutions in contract management are as follows:

  • People are talking about new technologies establishing contractual relationships based on artificial intelligence. Often, proper reading of the contracts made by humans would already be a good start, wouldn’t it ?
  • Business relations are ever more international with inherent risks: fiscal exposure, disputes, integrity issues etc.
  • Even Small and Medium sized Enterprises are obliged to develop their contract management.
  • Negotiations are tough, even though win-win solutions should remain the objective.
  • Companies reduce their internal resources, reducing fixed costs but bringing overload, lack of expertise etc.

Out of curiosity, what does AfiTaC stands for?

Jan: AfiTaC is the abbreviation of “Advice for international Tenders and Contracts”. We are passionate about contracts. An important part of what we do is promoting Contract Management to a broader public than Lawyers and Contract Managers/Administrators. Our blog and exchanges on LinkedIn reflect this. For specialists, we challenge the status-quo based on real-live situations and arguments; for people building up their knowledge, we provide valuable learning bricks.

What can AfiTaC do to accompany the change?

Jan: Apart from our blog available in 4 languages (English, French, Portuguese and Dutch), which is quite unique, we also propose customized/adapted services. AfiTaC offers complementary support to leverage your teams at a far more attractive cost than external legal services and covering a broader scope – from contractual to commercial subjects, covering topics ranging from contract wording, to insurance, financial & tax issues etc. We do this based on 20+ years of experience.

Concretely speaking, how would we work with AfiTaC?

Jan: We will set-up a collaborative platform (cloud-based storage on servers in France, protecting your data) enabling flexible interaction: you can upload your questions and retrieve the answers. This will allow better tracking and sharing than a traditional e-mail solution. However, if you prefer a more traditional way, we can adapt. Of course, confidentiality, loyalty and professionalism are our guiding principles.

Can you tell us a bit more about the services you provide?

Jan: We will give you some examples of how we can create value for you:

Contract Hotline:

Based on a monthly fee, your team can contact us for commercial and contractual issues and receive a reply within 24 hours. The monthly fee will be adjusted, after prior agreement, based on the actual usage of the hotline in the preceding month: no bad surprises for you, visibility upfront and you only pay as per the value we create for you.

Negotiation Coaching:

In B2B relationships, surprisingly, the possibility to create or destroy value during negotiations is still largely underestimated. Often, the commercial staff receives the company’s wish list (must have’s, golden rules etc) but is lacking the arguments to defend their case and, even more, the skills to negotiate. Our coaching can make your team stronger and more effective in finding win-win solutions with your business partners.

Risk Management:

We can audit your contracts, provide a structured approached for risk management, set-up a contract risk scoring system and organize or participate in your risk boards.

Training:

Together, we can establish your team’s needs and build an appropriate training: commercial awareness, contract standards, negotiation practice, international business, contract management etc.

Integrity:

We can set-up a positive environment for this important, but often scary, subject so that your teams can make sure they remain proud of the healthy business environment in which you operate. This contains three steps: (i) establishing an adapted integrity policy and statement, (ii) providing training based on real-life examples and (iii) facilitate an alert mechanism to be used if the team fears that certain practices put their proudness at risk. This will be adapted to SME’s: compact and straightforward, not so sophisticated as in large companies who have dedicated resources for this.

Mediation and Arbitration:

While our goal is to avoid disputes to escalate by anticipation (with all the above services), we also support dispute resolution in a fast, cost effective and balanced way.

Can we test these services to see if they are useful for us?

Jan: Yes, you can. Our principle is to facilitate, as much as possible, the access to our services. You can step in as low as you want and hopefully expand when you see the value we create together.

5 Common Negotiation Mistakes and How You Can Avoid Them

This article (by Katie Shonk) was selected on the internet for its interest to the readers of this blog:

Sometimes our negotiation mistakes are glaring: We accidentally reveal our bottom line, criticize the other party when patience was warranted, or get our numbers mixed up. More often, though, our negotiation mistakes are invisible: We get a perfectly good deal, but are unaware that we could have gotten a better one if we hadn’t succumbed to common errors and traps. By studying these 5 common negotiation mistakes and how you can avoid them, you can set yourself up for even better outcomes:

1. We Fail to Thoroughly Prepare to Negotiate.

The top negotiation mistake business negotiators make is to rush into negotiation without thoroughly preparing. You may think you’ve prepared thoroughly if you have strong opinions about what you want to get out of the deal, but that’s far from sufficient. Wise negotiators understand the importance of taking ample time to analyze several aspects of negotiation carefully. Start by thinking about your best alternative to a negotiated agreement, or BATNA, a term coined by Roger Fisher, William Ury, and Bruce Patton in their book Getting to Yes: Negotiating Agreement Without Giving In. Your BATNA is the best course of action available to you if you can’t reach agreement in your negotiation. It is also important to calculate your reservation value, or your walkaway point, and to try to estimate the other party’s BATNA. All of these calculations will help you make more rational decisions.

2. We Focus On Competing Rather than Collaborating.

Fearful of being taken advantage of, novice negotiators (and even some experienced ones) make ambitious, even unreasonable demands and resort to threats and other coercive tactics to try to get their way. For a more effective negotiation, focus on creating and claiming value. When you take time to build rapport and trust, both sides will feel more comfortable sharing their underlying interests in the negotiation. This knowledge will allow you to identify potential tradeoffs: if there’s an issue you don’t feel strongly about, you might be willing to concede in exchange for a concession on an issue you value greatly. Smart negotiators recognize they’ll get more by looking for win-win solutions.

3. We Fall Back on Cognitive Shortcuts.

In negotiation, we all rely on cognitive shortcuts, particularly when we’re unprepared and short on time, psychologists have found. We tend to be overconfident of our odds of getting our way, for instance. And we pay more attention to vivid information (such as salary in a job negotiation) than to less flashy information (such as the length of our commute) that might have a bigger impact on our satisfaction. Deepak Malhotra and Max H. Bazerman’s book Negotiation Genius: How to Overcome Obstacles and Achieve Brilliant Results at the Bargaining Table and Beyond describes these common negotiation mistakes. We can improve our negotiation skills and reduce the pernicious effects of these biases by preparing thoroughly and taking ample time to negotiate.

4. We Let Our Emotions Get the Best of Us.

In addition to cognitive biases, negotiators are susceptible to emotional biases that can prevent them from doing their best. Of course, our emotions and those of our counterparts can provide us with valuable information about how the negotiation is going. But strong emotions can also keep us from making rational decisions—and lead to negotiation mistakes. Negotiators often don’t understand how emotions affect negotiations. Anger can lead us to make overly risky choices, for example. And sadness can lead us to overpay in negotiation, Harvard Kennedy School professor Jennifer Lerner has found. When negotiations get heated, try taking a break to let everyone cool down. When you regroup, talk about what happened, giving everyone time to air their concerns.

5. We Take Ethical Shortcuts.

We tend to assume that only truly ruthless people behave unethically in negotiation. In fact, research by Harvard Business School professor Francesca Gino and others shows that most people are willing to cheat now and then in negotiation and other realms when they have a financial incentive to do so and believe they won’t be caught. We find ways to justify such behavior, whether by telling ourselves that the other party won’t feel the loss or by denying that we’ve done anything wrong. It’s important for all of us to stay attuned to ethical pitfalls in negotiation and avoid letting ourselves off the hook for even seemingly minor infractions that go against our moral code.

Other articles on negotiation can be found on this website by clicking here.

The original article can be found at the following location: https://www.pon.harvard.edu/daily/negotiation-skills-daily/5-common-negotiation-mistakes-and-how-you-can-avoid-them/?utm_source=WhatCountsEmail&utm_medium=daily&utm_date=2018-09-17-13-30-00&mqsc=E3989591

Contract Management & Music, what is the perfect “negotiation chill out music”?

When you are stuck in those long negotiations. Have battled too much for your points. Can’t listen anymore to the arguments of the other side. Can’t even listen to your own arguments anymore. Then you need to chill out. Take a break or leave a subject (where your intervention is less required) to your fellow negotiators and chill out. But how? Listen 5 minutes to “negotiation chill out music”. Something thematic, something relaxing.

What’s your choice? 

Listen to the music…

My recommendation goes to “Riders on the storm” from The Doors. You can click here to listen on YouTube while you read on:

… and dream away with the lyrics

I think most people will agree that the sound is relaxing. But what about the lyrics? Is it applicable to that feeling we can get as negotiators?

Riders on the storm
Riders on the storm
Into this house we’re born
Into this world we’re thrown
Like a dog without a bone
An actor out on loan
Riders on the storm

Contract negotiations are like riding on a storm. The “house you’re born” is the company you are working for and representing. The “dog without a bone” is symbolizing the hunger of the negotiator to achieve an acceptable agreement.

Negotiating contracts sometimes feels like being an actor on a play that has to be played. You know your arguments and can foresee the arguments that the other side will bring on the table. Some part of the theatre just has to be played. Otherwise you can’t say to someone of your back-office that you’ve sincerely tried to gain what he or she made a big deal about. Something that is simply un-negotiable. You know it and, when your counterpart comes with their arguments, it’s almost a relief.

Dependence and love

The world on you depends
Our life will never end
Gotta love your man

Your company depends on the contract you are negotiating. Jobs are at stake. This is important for the future. Order intake has to be achieved. A big pressure on your shoulders.

Our (professional) life are these negotiations and they will / seem to never end in spite of your eagerness to close the deal.

If you want to be in a win-win spirit, you have to love the other side of the negotiation (your client, your subcontractor, whomever you are negotiating with). Otherwise you cannot propose that balanced deal and would feel bad about any concession you make. But it is not easy when that party is hammering on your head with their arguments, is blocking.

Equally so, your back-office should love you as their negotiator. If there is no such trust, no such respect for the efforts you put into this, no such confidence that you will bring back home a good deal, you can better stop it and let someone else give it a try.

Take a long holiday
Let your children play

When you are out there, remember that better, more relaxing, times will come. See it as a mission that you have to accomplish. But thereafter you will take that holidays and spend some time with the kids.

Be careful…

There’s a killer on the road

If you give this man a ride
Sweet family will die
Killer on the road

Be careful for aggressive tactics of the other side. If you give in on something unacceptable for your company (your “sweet family”), the consequences can be disastrous. Keep your focus on that balanced deal. Don’t be intimidated. Don’t let the time play against you. Keep patient and insist on what you need and what you can or should get.

… and ride on

Riders on the storm


Riders on the storm

It’s OK. This “negotiation chill out music” has calmed you down. You can continue riding the storm. Hopefully grab a good wave. You can go on and reach a good deal !

 

This post is part of our series illustrating important contract management subjects by music to make it more fun. You can click here to see other posts of that series.

Contract Management & Music, Time Bar struggle for Muse

When a Contract Manager receives a new contract to follow, probably the first thing she/he should look at is this: Is there a time bar for claims? 

The answer to this question will dramatically change her/his behavior during the contract execution. Together with Muse and their song “Time is Running Out” (of which we have quoted the relevant lyrics here below), we will analyze the consequences of time bars. You can listen while you read by clicking on the below link to YouTube:

What is a Time Bar?

Unfortunately, it is a not a bar where your can spend as much time as you want. Many definitions are available all saying more or less the same. I randomly present you the one given by “The Law Dictionary” (https://thelawdictionary.org) : “Stoppage put on exercising a claim or judgment after a period that was established by a law or custom.”

Original justification of Time Bars

Time Bars were introduced decades ago because Contractors / Employers used to pile up potential claims “just in case” to only launch them at a later timing most convenient to their interests. Usually this coincided with the time they had the maximum bargaining power, for example because the project was already built (for avoidance of counter-claims, no more risk of suspension etc).

In accordance with good contracting practice, both parties should be more transparent and should be pushed to table any issues as soon as they are aware of them, as soon as practical. Time Bars became a usual practice … even though one could regret it between mature and reasonable contracting parties.

The consequences of not claiming within the Time Bar

You will be
The death of me
Yeah, you will be
The death of me

Bury it
I won’t let you bury it
I won’t let you smother it
I won’t let you murder it

When you are beyond that maximum period to formulate your claim, it will simply be barred, not accepted anymore, “buried” with the words of Muse. Anyone can understand that feeling of injustice when the facts objectively show that your claim is valid but the clock says that the time is over. The three last sentences of the above citation show this feeling of resistance, this frustration.

Contractor’s feelings and reactions

Most of the claims barred by this mechanism are Contractor’s claims, so let us see with Muse what reactions this will bring to the Contract Manager.

I think I’m drowning
Asphyxiated
I want to break the spell
That you’ve created

…I want to play the game
I want the friction

The Contractor will feel asphyxiated, under huge pressure to present its claims in time. The Contract Manager, in order to protect himself, will rather formulate too many claims than too little. She/he wants to play the game.

Our time is running out
And our time is running out
You can’t push it underground
We can’t stop it screaming out

And we end up with a “claim machine”: claims for anything. You never know it will be useful. Umbrella claims, we will always be able to attach something to this.

I wanted freedom
But I’m restricted
I tried to give you up
But I’m addicted

Now that you know I’m trapped
Sense of elation
You’ll never dream of breaking this fixation
You will squeeze the life out of me

These “just in case” claims generate a lot of work for both parties, the one formulating and the one reacting. The involved resources don’t add any value if the claims are not legitimate, not substantiated. Key project players are drawn away from the real pro-active project execution. And, the positive atmosphere of the project is spoiled: “what, another claim! That’s outrageous”, …

Time Bars in FIDIC contracts

FIDIC 99 has the Time Bar in sub-clause 20.1 of Red, Yellow and Silver Books with the following wording: “If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim.”

This clause clearly spells out the hard consequences. If you are late, you loose it all. Never mind how justified your claim is and how impacting the consequences are. This also applies for late claims related to Employer’s acts and Risks. On top of that, the Employer doesn’t have an equivalent Time Bar in its claims clause, sub-clause 2.5.

Fortunately, the new clause 20 in FIDIC 17 deals with both Contractor’s and Employer’s claims in the same way. The time bar is now in sub-clause 20.2: “If the claiming Party fails to give a Notice of Claim within this period of 28 days, the claiming Party shall not be entitled to any additional payment, the Contract Price shall not be reduced (in the case of the Employer as the claiming Party), the Time for Completion (in the case of the Contractor as the claiming Party) or the DNP (in the case of the Employer as the claiming Party) shall not be extended, and the other Party shall be discharged from any liability in connection with the event or circumstance giving rise to the Claim.”

General recommendations about time bars

  • Do not set Time Bars too short; the minimum is 28 days. Setting it too short will inevitably lead to a “claim machine” environment where the parties start formulating a continuous stream of claims so that they can always find a way to argue that they started the claim in time. I would recommend time bars not to be below 90 days.
  • Make the clause symmetrical / bilateral, meaning that the same time bar and duration should apply to both parties. During negotiations, parties tend to become much more reasonable when they know the same provision will also apply to them.
  • Ideally, the entitlement to claim should only be reduced to the extend that the other party was unable to mitigate its losses due the claim being late. This will avoid barring of obvious entitlements that could not be mitigated anyway.

Let us stop with the stereotypes that Contractors are just claim machines and look for the reasons. The vicious circle of ever lower time bars is not going to help. The above post and the music of Muse allow us to rethink our ways of working in a positive atmosphere outside of the rush of day-to-day projects.

This post is part of our series illustrating important contract management subjects by music to make it more fun. You can click here to see other posts of that series.

Contract Management: are contracts cast in stone?

Contracts cast in stone

I share with you a post (translated by AfiTaC from French) from Jean-Charles Savornin, a thought leader in France on contract management because I fully agree with him: 

Summer is an incredible time when we live differently from the rest of the year: on vacation, elsewhere, with a different climate …

This year, I watched Fort Boyard [a typical French television show opposing two teams on a variety of activities in a fortress]. One of the tests refers to the maxim DURA LEX SED LEX written on a lintel (here is the link with the contract management …)

The law is hard, but law.

This sentence, quite explicit, makes reference to the law. What about the contract then, which applies between the parties signing up to it? Is it also hard, but the contract?

Well, that’s the beauty of the contract. It is, as I often say, the reference of the relationship between the parties, the Bible of the project … with the difference that we can change the contract, not the Bible. So, the contract is more flexible and editable. It cannot be seen as “hard” or unfair. Remember that the contract was signed by the various parties, and that there is little, in the “usual” business at least, obligation to sign (no one puts a gun to your head).

So, let’s stop saying that the contract is hard, that it is unfair, that it is badly signed, that it should have been written differently. And let’s live by Jean-Jacques Rousseau’s sentence:

Obedience to a self-prescribed law, that’s freedom.

In terms of contract management, the contract represents this law that has been prescribed. But by “whom”? I can already imagine some persons opposing that they are not responsible for the contract signed. The “whom” refers to the entity for which you work and which you represent in your mission. Clearly, if your company has signed a contract, you are part of the “those” who have self-imposed this contract. And if you do not like it, you can take action; you can propose a modification of the contract or change jobs.

What freedom have we gained?

It is all that can be done in the framework of the contract and all that the other can do as well. “One” then has the freedom to do what is written and not to do what is not written. But “one” is especially free to propose a modification of the contract if something is no longer appropriate. And “the other” has the freedom to accept, or not. This the contract defines the playing field.

I use the word “playing” on purpose. A contract must be seen as a space of freedom in which your inventiveness can express itself to realize the opportunities. Because these opportunities will make your project a success, or not. These opportunities will allow you to move forward and offset the risks. There are risks … and there will be problems. Just as there are opportunities … and there will be good news. Besides, is the pre-award phase not called the [sales] opportunity phase in many companies? The contract is an opportunity for your organization. And you must accompany the execution of this opportunity to turn it into good news!

So, stop seeing the contract as a constraint, see it as a degree of freedom.

Personally, I’ve been working quite a lot on contract negotiations at pre-award stage. Later on, during execution stage, I was often surprised about the detached way the project team spoke about the contrat: “unfortunately, the contract says the following” as if it was cast in stone. I usually replied : “yes, while making the contract, we [- to emphasize the deal between persons and companies -] agreed on the following for this reason and have tried to write it down. It is not cast in stone. If now the circumstances have changed or you want to modify something, please do agree with the other party just like we agreed before”. 

You can find the original post on Jean-Charles Savornin’s blog at the following location (available in French only): http://www.contractence.fr/de-fort-boyard-a-jj-rousseau/